Sen. Tom Harkin, D-Iowa, chair of the Senate Education Committee, announces to reporters that a bipartisan agreement was reached on lowering rates for government student loans, at the Capitol in Washington, July 18.

Washington — Congress is set to notch a significant victory after the Senate passed a bipartisan reform of the nation’s student loan system Wednesday evening with a vote of 81-18.

“Any way you look at it, this is a good deal for students and a good deal for their families,” said Sen. Tom Harkin (D) of Iowa. “That’s the way this place should run, on compromise. Legitimate, hard fought – but on compromise.”

The compromise was forged by a bipartisan group of senators including Republicans Richard Burr of North Carolina, Tom Coburn of Oklahoma and Lamar Alexander of Tennessee alongside Democrats Joe Manchin of West Virginia, Tom Carper of Delaware, Dick Durbin of Illinois, and independent Angus King of Maine (who caucuses with Democrats). President Obama also backed the measure.

Among the 18 senators voting against the bill were 17 Democrats and one Republican. The House is expected to pass the legislation, which closely tracks a proposal passed by the GOP-held chamber last month and a similar plan in Mr. Obama’s budget proposal, before adjourning for the August recess.

The compromise will fix undergraduate loans to the interest rate on 10-year Treasury bonds plus 2.05 percentage points up to a maximum of 8.25 percent. Graduate loans would add 3.6 percentage points to the 10-year T-bill up to 9.5 percent, and loans for parents would be offered at a spread of 4.6 percentage points to the same benchmark up to 10.5 percent.

While the interest rate on each type of loan would reset each year with the Treasury rate, individual loans would have the same rate for the life of the loan.

The student loan regime would replace a system of fixed rates, with some subsidized loans at 3.4 percent, most other undergraduate loans at 6.8 percent, and several other loans for parents and graduate students ranging upward from 7.9 percent.

Chiefly, the proposal’s sponsors think they’ve made the student loan program more accurately reflect the cost of the loans.

When Congress fixes a rate, “it will always be wrong,” Senator King said on the Senate floor Wednesday, “wrong for the students, as it is now, dramatically – or wrong for the taxpayers.”

In addition, the compromise would cut rates for at least the next handful of years. This year’s rate for most undergraduate students, for example, would fall from 6.8 percent to 3.86 percent.

Lawmakers in favor of the compromise point out that since even students eligible for the cheapest subsidized loans could only cover several thousand dollars of college costs with such measures, their new proposal would save students of all income levels while also cutting rates for the poorest college students. Overall, a typical undergraduate would see $1,500 in lower debt payments over the course of their loan, according to a White House analysis.

But liberal lawmakers said the bill amounted to a bait-and-switch for American students, with low rates on loans now when interest rates are low but with new caps that are above the levels set by Congress at present.

“The White House is being disingenuous and is trying to sweep under the rug big increases in interest rates for students and parents in the near future,” said Sen. Bernie Sanders (I) of Vermont, who caucuses with Democrats, in a statement.

Opponents of the measure, like Sen. Elizabeth Warren (D) of Massachusetts, also bristled at the notion that the bill would save over $700 million over the next 10 years, arguing that Congress should not attempt to reduce the deficit on the backs of students.

Proponents of the bill point out that $70 million per year over a decade is, given the vagaries of long-term projections, as close to zero budget impact as could likely be measured by the Congressional Budget Office.

En route to passage, the Senate defeated two Democratic amendments, one that would have fixed rates at a level below the compromise bill and another that would have sunset the bill after two years.

King noted that making student loan programs more generous may make for good politics but doesn’t address the central issue of college access: affordability.

Congress could put another $1,000 into students’ pockets, “but if the colleges increase their cost by $1,000, nobody wins.... The money has just been eaten up by the increase in cost.”

Senators and members of the Obama administration stressed that the question of rising overall college costs, not the comparatively minor impact on tweaking the interest rate attached to college loans, should be Congress’s focus after the August recess.

“This debate now is all about the cost of debt,” said Education Secretary Arne Duncan on a call with reporters. “The much much bigger challenge for families, for incoming families, is the amount of debt itself, and we need to work in a bipartisan way” to fix that problem.

In order to revisit Democrats’ concerns, the Senate bill requires the Government Accountability Office to generate a report on the costs of administering the federal student loan program. The information would be used to help lawmakers address student loans as part of the need to reauthorize the Higher Education Act this fall.

That report was a prime issue for Senator Harkin, an elder statesman of his party’s liberal wing who initially opposed the student loan compromise.

But Harkin, who voted for the final measure, said the GAO information would set up a fuller debate in the congressional panel he chairs (the Health, Education, Labor and Pensions Committee) when Congress returns in September.

“We can get some more data on exactly what do these programs cost? … We don’t really have all the data that we need,” Harkin said at a press conference last week. “We will have a historic opportunity to get a handle on runaway costs and stop the shifting of costs to students.”

So while the sweeping reform of the nation’s student loan plan was a surprising bit of bipartisan success in this Congress, the heavy lifting is yet to come.

“This is not the last piece of legislation that Congress will pass,” said James Kvaal, deputy director of the White House Domestic Policy Council, in a call with reporters, “but it is an important step toward making loans more affordable.”